ASX shares will be heavily impacted by the direction of interest rates in the coming year, according to IML Investors Mutual.
This means that it's now more important than ever to avoid the speculators and buy up businesses that actually have firm growth prospects.
"We expect central banks to raise interest rates fairly sharply over the next 18 months to more 'normal' levels," read a memo to clients from IML analysts.
"As such, we continue to steer away from the riskier parts of the sharemarket and remain focused on identifying and holding what we assess to be good quality companies, are well managed, which offer sound value, and which can grow their earnings and do well over the next 3 to 5 years."
Here are 2 such examples from IML's Australian Smaller Companies Fund:
The company you've never heard of, but actually have
The name HT&E Ltd (ASX: HT1) — short for Here, There and Everywhere — may not be familiar to many investors.
But they have likely heard the company's product sometime — in their car, on their smart speaker or even while shopping.
The company owns the Australian Radio Network, which runs many popular radio stations like the KIIS network, Chemist Warehouse Remix and the Pure Gold network.
It also runs outdoor advertising, from its roots as APN News & Media.
The IML team loved HT&E's $308 million acquisition of regional radio network Grant Broadcasters late last year.
"This acquisition is an excellent fit for HT1 as it creates a truly national radio network that will give the company added reach and the enhanced ability to fulfil national briefs for agencies and larger advertisers."
The memo also noted that HT&E had resolved its dispute with the Australian Taxation Office for "less than half the amount originally sought".
"With buoyant ad market conditions expected to continue into 2022, HT&E remains good value on a PE of 12 times FY22 and a yield of over 4%."
HT&E shares are up about 11% over the past year. They closed Wednesday at $1.99.
Agricultural feed is a timeless demand
Ridley Corporation Ltd (ASX: RIC) is another ASX share that may not be immediately recognisable to retail investors.
The company, which produces animal feed and nutrition products, has seen its share price climb 66% over the past 12 months.
The IML team noted Ridley presented positive numbers at the annual general meeting late in the year.
"To November 2021, year to date EBITDA growth in both of Ridley's reporting segments had exceeded the 16% growth seen in the prior corresponding period," the memo read.
"In support of continued earnings growth, AGM commentary also highlighted further progress on delivering various business improvement initiatives, with the associated profit growth still to come."
Despite the negative impact of COVID-19 on some of its customers, Ridley itself has navigated the pandemic ably.
"While the spread of Omicron seems hard to avoid, safety practices and employee buy-in has resulted in little lost time to date," stated IML analysts.
"Despite the robust share price performance over the last 12 months, Ridley continues to look cheap, trading on a one-year forward PE of just 13x with a 3.8% dividend yield."
Ridley shares closed Wednesday at $1.56.
